twolverton@mercurynews.com

Streaming gaming company OnLive went through a kind of bankruptcy on Friday, the company acknowledged in a statement issued Sunday.

As part of the proceeding -- called an Assignment for the Benefit of Creditors -- all previous OnLive shareholders, including its employees and founder Steve Perlman, lost their stakes in the company and OnLive laid off all its employees, the company said in the satement. The newly formed company that acquired OnLive's assets will operate under OnLive's name, continue to offer its services and operate its game service and has offered jobs to nearly half of the company's former employees.

"OnLive's board of directors, faced with difficult financial decisions for OnLive, determined that the best course of action was a restructuring," the company said in a statement. "The asset acquisition, although a heartbreaking transition for everyone involved with OnLive, allows the company's core innovation and ongoing offerings -- the product of over a decade of hard work transforming the OnLive vision into reality -- to survive and continue to evolve."

The OnLive game service has continued to operate through the transition. Customers who bought or rented games from OnLive before the bankruptcy will retain rights and access to those games after it, the company said.

As this newspaper reported on Friday, Lauder Partners, a venture capital

firm run by Gary Lauder, provided the initial financing for the newly restructured company, OnLive confirmed. For now, Lauder is the only investor in the new OnLive, but the company expects to have more investors soon, said company spokeswoman Jane Anderson.

Perlman, the CEO of OnLive, will continue with the company. He received no compensation from the acquisition of OnLive's assets and is receiving no cash compensation from the new company, according to the statement. Anderson said she didn't know Perlman's title or whether he has a contract with the new company.

Other company executives saw their salaries slashed "to allow the company to hire as many employees as possible within the current budget."

OnLive plans to offer contract work in return for stock options to those employees who weren't immediately offered a job at the newly restructured company, OnLive said in the statement. With additional funding the new OnLive expects to hire back more of the former workers and make new hires.

An Assignment for the Benefit of Creditors is a bankruptcy proceeding that operates under state, not federal, law. In the proceeding, an insolvent company's assets are assigned to an entity of the company's choosing, rather than being determined through a bankruptcy court. The assignee is then obligated to pay the company's creditors from money raised by selling the company's assets.

In the OnLive restructuring, its technology, intellectual property and other assets were transferred to an assignee and then sold to a third party -- the new OnLive. The company did not say how much money was raised in the asset sale or how much funding it has received from Gary Lauder.

OnLive's game service streams console and PC games to subscribers over the Internet. Its games can be played on PCs, smartphones, tablets and televisions. It also offers an iPad app that lets users access a Windows PC desktop from their mobile device.

Contact Troy Wolverton at 408-840-4285. Follow him at Twitter.com/troywolv.